In the midwest.

Floods Could Bring Better Prices For Farmers Outside Soggy Areas

July 26, 1993|By Richard Orr.

Agricultural economists at Midwest universities are attempting to assess the impact of the Great Floods of 1993 on the agricultural economy and on consumer food prices. Although making projections at this point is difficult, the current outlook is for farmers outside flooded areas to benefit from higher corn and soybean prices, while consumer food prices will be little affected.

Economists at the University of Missouri at Columbia say the floods will have little impact on food prices, will return crop prices to levels of three years ago, and won't cause liquidation of livestock herds. The best comparison is the flood of 1951 when crops harvested that year dropped 5 percent from the previous year, says Abner Womack, director of the university's Food and Agricultural Policy Research Institute (FABRI).

"A 5 percent drop in yield this year won't have much impact on the food supply, given the record-breaking crop we had last year," Womack said. "That will hardly cause a blip in the prices consumers pay at the supermarket."

Bill Uhrig, Purdue University economist, points out that heavy rains in Iowa, Minnesota and the Dakotas knocked out of production an estimated 4 million acres, or 3 percent of the nation's corn and soybean crops, causing a market frenzy on the Chicago Board of Trade. The average Indiana farmer could gain $10,000 or more in extra income from the resulting higher corn and soybean prices, Uhrig said.

"The current market situation, with high uncertainty and market volatility, is a bull market," he said. "And while it means a great deal to farmers, it is not a major concern yet for consumer food prices."

Uhrig said hot, dry August weather would have potentially dramatic effects on soybean production.

"These weather-related effects are real," he said, "because at the beginning of the season, we were concerned with what we would do with the large carry-over stocks from last year. But due to delayed plantings and some acreage not planted at all, there is a potential for a very low carry-over at the end of this year."

Missouri's Womack says that although crop prices have moved higher recently, long-term averages may not hold at these levels. Annual average prices for corn could go up 15 cents a bushel and soybeans up 50 cents a bushel, based on current U.S. Department of Agriculture estimates, he points out.

It will take additional crop damage to hold prices at levels being traded in the market, according to Womack.

"That's hard to tell a farmer who has just seen this year's crop wash away," he said. "The impact of the flood is localized and terribly uneven."

Assuming a 3 to 4 percent drop in corn and soybean yields this fall, the USDA has estimated prices could be about $2.20 per bushel for corn, $6.38 per bushel for soybeans, and $2.65 per bushel for wheat. Womack said those are comparable to prices of three years ago.

In comparison, a FABRI baseline run last January had price projections of corn at $2.09, soybeans at $5.55, and wheat at $2.90. The projections for the year, figured before the flood, were based on normal crop yield following a bumper crop last year.

The FABRI economists predicte the flood will cause grain prices to rise enough to slow further expansion in beef and swine herds. However, they said, feed prices should not go up enough to cause liquidations of the herds, as occurred after the 1988 drought.